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New German Financial Law Expands Reporting Obligations for German Entities

August 09, 2021

The recent reform of the German transparency register affects almost all companies in Germany and greatly expands the reporting obligations for German entities.

The Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationsgesetz (TraFinG) entered into force on August 1, 2021. According to the TraFinG, German companies must report their beneficial owners to the transparency register for registration. A violation of the reporting obligation could trigger fines. Transition periods until the end of 2022 are in the law, as described below, but they do not apply to newly established entities.

The TraFinG is part of a global trend in favor of more transparency. Earlier this year, US Congress passed the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act. Under the CTA, a broadly defined “reporting company” must report certain beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) within the US Treasury. (See Corporate Transparency Act: What Companies Need to Know).

Do I need to file if the beneficial owners are listed in other registers?

The TraFinG is a new step in Germany’s fight against money laundering. It removes certain privileges that were in force under the Money Laundering Act (Geldwäschegesetz- GWG). For instance, it is no longer sufficient that the beneficial owner can be found in another publicly accessible state register (commercial register, partnership register, register of cooperatives, register of associations, or company register). It must be in the transparency register that is also linked with all corresponding transparency registers in the other EU member states. 

Do all German legal entities have to report and keep their reports current?

The reporting obligation covers all legal nonpublic entities under German law (AG, GmbH, KGaA, SE, cooperatives, and foundations) and partnerships registered in the commercial register (OHG, KG; GmbH & Co. KG). Partnerships under the German Civil Code (GbR) are not covered unless they hold shares in a GmbH. Listed companies are covered, but registered associations (eingetragener Verein) are not as they are automatically registered. Section 21 (1) GWG states explicitly that administrators of trusts (trustees) who are residents or domiciled in Germany must obtain, retain, and keep up-to-date information on the beneficial owners of the trust they administer as well as the nationality of the beneficial owners, and must promptly provide this information to the entity keeping the register for entry in the transparency register.

What needs to be reported to the transparency register?

Every beneficial owner of a company must be reported to the transparency register, stating their first name and surname, date of birth, place of residence, type and scope of beneficial interest, and all nationalities. A beneficial owner is any natural person who ultimately owns or controls the company. This includes any person who directly or indirectly holds more than 25% of the share capital, controls more than 25% of the voting rights, or exercises control in a comparable manner. If there is no such person in the case of a GmbH or AG, the members of the board of directors or management must be reported as so-called fictitious beneficial owners. 

Is an electronic filing possible?

Yes, on the transparency register website

When must the filing take place?

According to the TranFinG, the notification must be filed without delay. However, the following transitional periods apply, within which the notification of the beneficial owner must be carried out if a notification obligation did not previously exist:

  • AG, SE, KGaA until March 31, 2022
  • GmbH, cooperative, European cooperative, partnership until June 30, 2022
  • All other cases: until December 31, 2022.

Please note that newly established companies do not benefit from this transition period. Moreover, any change in the person of the beneficial owner must also be reported immediately to the transparency register. This also applies for so-called fictitious beneficial owners, e.g., in the event of a change in the board of directors or management that is recorded as a data set in the register.

Who is permitted to inspect the transparency register?

The transparency register can be inspected by anyone without any special reason. Due to data protection regulations, the beneficial owners can apply for a restriction of the inspection right according to Section 23 paragraph (2) of the Money Laundering Act in specific cases.

Are there any fines for a violation?

Failing to report or filing incomplete or wrong reports constitutes a misdemeanor.

Conclusion

As with the CTA for the United States, German federal agencies and state and local law enforcement agencies will have greater access to beneficial ownership information though the transparency register and will be able to share such information with international agencies in an effort to combat money laundering and other illicit activities. All parties with entities in Germany should expect increased checks and audits by the German authorities, especially after the transitional periods will have expired.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Axel Spies

Frankfurt
Jörg Siegels
Karsten Emmermann